For many individuals, creating an estate plan that includes a trust is the best way to accomplish their goals during life and after death. But many people hesitate to consider a trust, because they do not understand exactly what a trust is and how a trust works. If you know a few basic concepts, as explained below by our BRMM estate planning attorneys, you can talk confidently with your attorney about whether a trust is the right approach for your estate plan.
What Is a Trust?
A trust is a document in which someone (the trustee) manages and distributes assets on behalf of the individual who creates the trust. To establish a trust, the individual (called the grantor or settlor) signs a legal document that creates the trust and specifies the terms under which it will operate.
In the document, the grantor names a trustee to manage the trust assets and distribute the trust property to the beneficiary (or beneficiaries) named in the trust document. The trustee is obligated to administer the trust and distribute the property according to the terms specified in the trust document and in compliance with applicable laws.
A substantial body of law governs trusts. The Michigan Trust Code includes numerous statutory provisions that apply to creation and administration of trusts, conduct of trustees, and rights of beneficiaries. In addition, Michigan court decisions interpreting trust law and applying the statutory provisions govern trusts. Some types of trusts are also subject to specific federal laws.
Types of Trusts
Trusts can be characterized in several different ways. An inter vivos or living trust is one that takes effect during the grantor’s lifetime. In contrast, a testamentary trust takes effect on the grantor’s death (although the grantor executes the trust document during his or her lifetime).
A trust also can be either revocable or irrevocable. A revocable trust can be changed or terminated by the grantor at any time. An irrevocable trust cannot be altered or terminated by the grantor after it is established, except by the terms of the trust or by a court.
A revocable living trust is a special type of trust that is part of many estate plans. In most living trusts, the grantor is also the trustee and beneficiary of the trust during his or her lifetime. On the grantor’s incapacity or death, the trust becomes irrevocable. A successor trustee then manages the property according to the terms of the trust document. Typically, the successor trustee ultimately distributes the assets to the named beneficiaries following the grantor’s death.
What Does a Trust Accomplish?
A trust is a valuable and flexible estate planning tool. It can accomplish many different purposes. Every trust is uniquely designed to address the goals of the grantor who creates it. Some of the common reasons for using a trust in an estate plan include:
- Protecting a family legacy into the future, including preventing claims by future ex-spouses and creditors
- Addressing the special inheritance concerns that arise in a blended family
- Providing management of the inheritance of minor children
- Taking care of a child or adult with special needs
- Providing financial management for beneficiaries who are financially irresponsible or have substance abuse or other addiction issues (spendthrift trusts)
- Protecting assets as part of Medicaid planning for long term care needs
- Minimizing estate taxes and avoiding probate
While trusts are the right approach for many situations, they are not the best solution for all circumstances. If you establish a trust without assistance from an experienced estate planning attorney or use a form or online service to create a trust, you may not accomplish what you intend. A do-it-yourself approach also can create legal problems that are extremely difficult to resolve or discovered too late to fix.
Benefits of Including a Trust in Your Estate Plan
Including a trust in an estate plan provides a number of benefits. One important advantage is that a trust enables the grantor to control how property and assets are distributed to beneficiaries after the grantor’s death. That benefit contrasts with the lack of control over property distributed through a will, which goes immediately and entirely to named beneficiaries.
A trust has a number of other important benefits as well, such as:
- Avoiding probate for property and assets
- Maintaining privacy of individual and family financial information
- Protecting assets into the future, in the event of the grantor’s incapacity or death
- Taking care of family members with special needs, while preserving eligibility for public benefits
To determine whether a trust is the best way to accomplish your long-term financial goals, it is essential to discuss your personal and financial circumstances with an experienced estate planning attorney.
Talk With Our Experienced Troy, Michigan Estate Planning Attorneys
At the law firm of Barron, Rosenberg, Mayoras & Mayoras, P.C., we provide a full range of services relating to estate planning, including trusts. We’ve been serving clients in Michigan for more than 40 years. Our clients count on our commitment, experience, and credentials when they turn to us for their legal needs.
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This article was provided by Don L. Rosenberg, Co-Founder of the Law Firm of Barron, Rosenberg, Mayoras & Mayoras, one of Michigan’s TOP Elder Law & Estate Planning Law Firms. Attorney Rosenberg and his firm are Members of the National ElderCare Matters Alliance and have a Featured Listing on ElderCareMatters.com– America’s National Directory of Elder Care / Senior Care Resources to help families plan for and deal with the issues of Aging.
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